Tax authorities to detain goods only in the case of deliberate tax evasion and not for technical or minor defects

NE Equipment Solutions Pvt. Ltd. Vs State of Tripura and others (Tripura High Court)

Tax authorities to detain goods only in the case of deliberate tax evasion and not for technical or minor defects

NE Equipment Solution Pvt. Ltd. (Petitioner) approached the Hon’ble Tripura High Court primarily for release of the machinery which was intercepted by the GST authorities on the ground that the driver did not have valid e-way bill for the machinery being brought within the State.

Further, the Superintendent of Taxes, Churaibari Enforcement Wing issued a show-cause notice dated August 19, 2021 (SCN) to the Petitioner under Section 129(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) and the State Goods and Services Tax Act, 2017 (SGST Act) imposing penalty of Rs. 17,87,796/- on the Petitioner.

The Hon’ble Tripura High court held that the machinery should be released as the validity of the E-way bill expired on account of unforeseen and unexpected delay in crossing the check post since the transport department stopped the movement of the vehicle on the ground that the machinery was not registered in the State of Tripura and GST department imposed a fine of Rs.10,000/- which the Petitioner paid. This process, however, took more than 24 hours and in the meantime, the validity of the e-way bill expired. Though the Petitioner generated a new e-way bill, the GST department of the State was not prepared to accept it.

Further, added that detaining such machinery at the check post would expose it to deterioration particularly in the present season of heavy rainfall. The purchaser of the vehicle would also suffer gross inconvenience because having paid more than fifty lakhs of rupees for the purchase of the machinery he would not get the delivery of it for an indefinite period of time.

Moreover, the tax authorities must make a clear distinction between deliberate tax evasion and technical or minor defects which manifest no intention to evade tax. When the IGST liability has been fully discharged, no intention can be attributed on part of the Petitioner to evade tax.

Directed:

• GST Department to release the transport vehicle and the machinery.
• The Petitioner to file an undertaking before the Court to the effect that if any tax or penalty liability is crystallized upon final assessment subject to right of appeal and further challenge, the Petitioner shall deposit the same with the Government revenue.
• The Petitioner to reply to the SCN till September 10, 2021
• The Assessing Officer to pass final order of assessment in connection with the SCN bearing in mind the observations made in this order.

FULL TEXT OF THE JUDGMENT/ORDER OF TRIPURA HIGH COURT

Learned Addl. Government Advocate Mr. K. De waived rule on behalf of the respondents.

Petitioner has prayed for release of the machinery which has been detained at Churaibari check post while it was in transit from Silchar to Khowai. Brief facts are as under:

The petitioner is a company registered under the Companies Act and is engaged in the business of dealing in TATA Hitachi Construction Machinery. The petitioner has its Head Office at Silchar and a Branch Office at Agartala. In the course of the business, the petitioner sold one TATA Hitachi Hydraulic Excavator Model No. EX 210 LC to one Satya Sundar Das of Khowai. The cost of machinery was Rs.49,66,102/- on which IGST of Rs.8,93,898/- was collected from the purchaser and duly declared in the sale invoices. The excavator was being transported from Silchar to the head office of the petitioner company at Agartala under properly generated e-way bill dated 14.08.2021 with a validity period up to 16.08.2021.

The machinery we are informed, was being transported in a truck trailer and started its journey from Silchar on 15.08.2021. When the transport vehicle reached at Churaibari check post in the early morning hours of 16.08.2021, the transport department of State of Tripura detained the vehicle on the ground that the excavator had no registration in the State of Tripura which was violative of Section 192A of the Motor Vehicles Act. Eventually the transport authority released the order of detention on 17.08.2021 upon the petitioner paying fine of Rs.10,000/-. In the meantime, however, the validity of the e-way bill had expired. The vehicle was now intercepted by the GST authorities at Churaibari check post on the ground that the driver did not have valid e-way bill for the machinery being brought within the State. According to the petitioner, a fresh e-way bill was also generated on 18.08.2021, however, the authorities refused to accept the same as a valid document for passage. On 19.08.2021 the Superintendent of Taxes, Churaibari Enforcement Wing issued a show-cause notice to the petitioner under section 129(3) of the Central Goods and Services Tax Act and the State Goods and Services Tax Act calling upon the petitioner why unpaid tax with penalty totaling to Rs.17,87,796/- should not be recovered from the petitioner. At that stage, the petitioner has approached this Court primarily for release of the machinery.

Having heard learned counsel for the parties and having perused the materials on record, we are of the opinion that the machinery in question should be released forthwith. The facts are eloquent. The department does not dispute that the petitioner has collected the necessary GST on the sale of machinery as indicated in the sale invoice. There is no allegation of such tax not being deposited with the Government revenue. The department is not in a position to dispute that the vehicle did arrive at Churaibari check post carrying proper e-way bill and within the validity period of the e-way bill. The validity expired on account of unforeseen and unexpected delay in crossing the check post since the transport department stopped the movement of the vehicle on the ground that the machinery was not registered in the State of Tripura. This issue was cleared when the transport department imposed a fine of Rs.10,000/- which the petitioner paid. This process, however, took more than 24 hours and in the meantime, the validity of the e-way bill expired. Though the petitioner generated a new e-way bill, the GST department of the State was not prepared to accept it.

Under the circumstances, allowing the department to detain the machinery would be wholly impermissible. The fault of the petitioner if at all is rather technical. The machinery costs nearly half a crore of rupees on which the Government revenue has already earned substantial tax. Detaining such machinery at the check post would expose it to deterioration particularly in the present season of heavy rainfall. The purchaser of the vehicle would also suffer gross inconvenience because having paid more than fifty lakhs of rupees for purchase of the machinery he would not get the delivery of it for an indefinite period of time. His projects and works which must be in pipeline would also suffer. Under the GST regime even the tax authority has power to release machinery on provisional basis pending further assessment. In appropriate cases such powers must be exercised. Present was an ideal case where such powers should have been activated. The tax authorities must make a clear distinction between deliberate tax evasion and technical or minor defects which manifest no intention to evade tax. When the IGST liability has been fully discharged, no intention can be attributed on part of the petitioner to evade tax. In the present case, therefore, we would release the machinery upon the petitioner filing an undertaking before this Court that eventually subject to appeal and further right to challenge the order of assessment, if any tax or penalty liability is crystallized, the petitioner would discharge the same.

In the result, the petition is disposed of with following directions:

(i) The respondents shall release the transport vehicle and the machinery in question forthwith. The learned counsel for the respondents shall communicate this order telephonically to the respondents to enable this release;

(ii) The petitioner shall file an undertaking before this Court sworn by the Manager of the Branch Office or the Director of the Company within one week from today to the effect that if any tax or penalty liability is crystallized upon final assessment subject to right of appeal and further challenge, the petitioner shall deposit the same with the Government revenue;

(iii) The petitioner shall have time up to 10.09.2021 to file reply to the show-cause notice dated 19.08.2021;

(iv) The Assessing Officer shall pass final order of assessment in connection with the same show-cause notice bearing in mind the observations made in this order.

Petition disposed of accordingly.

Pending application(s), if any, also stands disposed of.

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